Why BP Can't Find a Friend in Big Oil

In an industry in which companies rarely criticize each other publicly, the Gulf disaster has touched off some unusual infighting. And beleaguered BP (BP) is the punching bag. Ever since the oil rig explosion in the Gulf, which has cost BP $3.5 billion and counting, rivals have been distancing themselves from the British oil giant. The latest flap: Two of BP's business partners in the stricken well, Anadarko Petroleum (APC), based in The Woodlands, Tex., and MOEX Offshore, a unit of Japanese energy concern Mitsui Oil Exploration, have refused to help pay for cleanup costs. BP has asked Anadarko, which has a 25 percent stake in the well, to pay $272 million. Mitsui, a 10 percent owner in the well, has been asked to contribute $111 million.

On June 18, Anadarko Chief Executive Officer James T. Hackett caused a stir in a statement in which he said: "The mounting evidence demonstrates that this tragedy was preventable and the direct result of BP's reckless decisions and actions." Mitsui hasn't commented. BP thinks both Anadarko and Mitsui should pay their share. Both companies approved of "certain key decisions relating to the well," a BP spokesman said on July 13.

Another source of tension involves the future direction of offshore drilling regulations. The BP spill has fouled not only the waters and beaches of the Gulf but also one of the energy companies' most lucrative and fast-growing sources of oil and gas. After the Apr. 20 accident that triggered the spill and killed 11 people, the U.S. government halted drilling in water deeper than 500 feet, creating a huge hurdle for energy companies.

As a result, ExxonMobil (XOM) and Royal Dutch Shell (RDSA) are now trying to persuade politicians and regulators that their practices are different from BP's—and that companies that operate safely should be allowed to keep drilling. ExxonMobil CEO Rex W. Tillerson said during congressional hearings on June 15: "When you properly design wells … and focus on safe operations and risk management, tragic incidents like the one in the Gulf of Mexico today should not occur."

Differing Safety Practices

Back in May, in a letter to the Minerals Management Service, which regulates drilling, Shell Oil U.S. President Marvin E. Odum listed a series of the company's drilling practices that differ from what has been reported about BP's well. Odum contended that around the world Shell uses safer well designs than the one that blew out on BP and incorporates extensive redundancy into its safety features, which should reduce the chances of a similar accident.

The American Energy Alliance, a Washington-based lobbying group financed by the energy industry, has launched a website called Save U.S. Energy Jobs, which offers interactive graphics illustrating the gaps between BP and other oil company industry practices. The AEA also calls the drilling moratorium "The Second Gulf Disaster" because of its impact on jobs and U.S. energy security. "We shouldn't lump the entire industry together," says the group's president, Thomas J. Pyle.

More than a dozen oil services companies made a similar argument before a federal appeals court on July 9. The companies claim the blanket suspension fails to distinguish between companies that adhere to modern safety practices and BP. "The industry leader is being treated the same way as the industry laggard," says John Cooney, an attorney for Hornbeck Offshore Services.

The American public seems to be buying the industry line. Three-quarters of those surveyed in a Bloomberg National Poll published July 15 say that the spill was "a freak accident" that shouldn't shut down deepwater drilling. "People say BP must pay, but there's no sense of impending doom," says J. Ann Selzer, president of pollster Selzer & Co.

Outraged as they may be with BP, rivals so far have done little to unwind the business partnerships that bind the industry. Because drilling and developing oil and gas fields costs billions, each project tends to be taken on by consortia rather than single companies. ExxonMobil, for instance, remains BP's partner in Thunder Horse, the largest producing platform in the Gulf of Mexico. Even Anadarko is committed to working with BP in Brazil, when BP completes the acquisition from Devon Energy (DVN) of Brazilian properties in which Anadarko is a partner. Whatever the differences, it's still mostly business as usual.

The bottom line Eager to resume drilling in the Gulf, oil companies are distancing themselves from BP and painting its safety practices as substandard.

With Kim Chipman

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